Even though the Northwest Austin office submarket, which includes the Four Points and River Place areas, is experiencing its fourth straight quarter of increasing vacancy rates, the asking rate for that space is still steadily rising. That may be a reflection of how landlords of commercial real estate expect market demand to behave heading into the second half of 2021.
“When the office market is back and full tilt—which it feels like it is quickly moving in that direction—if you have valuable space on the ground, you’re going to have good options for tenants to lease it,” said Ben Tolson, a managing principal at commercial real estate firm Aquila Commercial.
As western Travis County continues to boom in population, much like the rest of the Austin area, real estate leaders expect demand for office and retail space to climb in kind.
But building out office space for technology companies, law offices and other skilled labor near Four Points and River Place faces several hurdles before coming to fruition.
Roadway infrastructure and a scarcity of shovel-ready land may make it difficult for developers to build new offices, local real estate leaders said.
“Real estate in general in that area is relatively difficult to develop, mostly because of the geography,” said Andrew Crain, commercial realty specialist for Pure Realty. “For a standard developer who is going to build office buildings, before they break ground they are spending a ton of money on planning and engineering.”
THE GROWING DEMAND FOR OFFICE SPACE
The areas around Four Points are experiencing a population boom similar to Austin. Home prices in Central Austin are skyrocketing, pushing some residents farther out or looking for a dream property in one of Austin’s most scenic corners. And as more people move out to Austin’s rural areas, the demand for nearby office space is expected to climb, in turn, local real estate experts said.
“The acceleration in housing prices in Central Austin are pushing newcomers to the city to look at options north and west,” Tolson said.
From 2011-19, the total population of the four ZIP codes surrounding the Four Points area—78726, 78732, 78730 and 78750—grew by just over 19%. The city of Austin in that time grew by a comparable 25%, according to U.S. Census Bureau numbers.
The population of residents drawn to the Lake Travis and Four Points area skew increasingly white collar professionals in high skill sectors of the economy.
The average median income in those ZIP codes is $117,795, per census data. That is 64% higher than the median income for the city of Austin as a whole.
Residents in the Four Points area further hold higher educational degrees compared to Austin’s population. In the 78730 ZIP code, more than one-third of all residents over 25 years old hold a graduate degree or higher, according to census data.
“There is a bit of a demographic surge in that direction that is bringing new skill sets,” Tolson said. “If you believe the office market will be reflective of demographic patterns, you will see a deepening of tech and engineering [tenants.]”
Crain believes all of the new highly skilled workers moving out to western Travis County and Austin’s suburbs will search for office space closer to home, looking to shed the commute to economic centers like downtown Austin and The Domain.
“The demand for people to live and work and play closer to home is going to continue to go up, especially after the last 18 months,” Crain said.
Regardless of industry, some businesses are eyeing the Four Points region because of its natural splendor and proximity to Lake Travis, a regional draw.
Amber Russell recently leased space in River Place for her new law office that opened in early June. The lawyer said she signed the lease after working in the area previously, and now Russell is looking to buy office space nearby to permanently set her roots.
The convergence of urban connectivity and rural landscapes, Russell said, is one of the largest draws to the area.
“It is such a unique area,” Russell said. “All I can see is the Hill Country. I see trees. In the morning I come in and hear birds singing. [You] have world class office space and also get the best of the Hill Country.”
The Four Points area remains relatively close to a lot of economic and residential centers throughout Austin. Without rush hour traffic, drivers can connect to downtown Austin, The Domain, Cedar Park and Bee Cave within 30 minutes from the intersection of RM 620 and RM 2222.
But as more people and businesses move closer to Lake Travis, they bring more traffic congestion. Daily traffic at RM 620 and Comanche Trail grew by more than 30% from 2011-19, according to traffic counts from the Texas Department of Transportation.
Those numbers are only expected to escalate over the next decade. The Capital Area Metro Planning Organization projects that same intersection will see 59,800 vehicles drive through every day—a 34% increase from the 2019 traffic counts.
TxDOT is currently constructing a bypass road to alleviate traffic congestion at the intersection of RM 620 and RM 2222. The 2-year project is expected to open to drivers before the end of the year.
Fran Bates, the executive director of the West Austin Chamber of Commerce, said she believes the bypass road will help to accelerate demand for office space in western Travis County.
“Without transportation, you don’t have thriving businesses, you don’t have people moving into the area. If they can’t get to where they want to go, then it’s not worth it. But ... we have so much access. It’s called the Four Points area for a reason—you can go in any direction,” Bates said.
But Bates also contends the area will need more expansions of roadway capacity, especially for retail and low-wage workers who cannot afford to live in the area they work.
In 2020, CAMPO diverted funding away from intersection improvements at RM 620 and Anderson Mill Road, about 4 miles north of the Four Points intersection. That project is now in limbo.
TxDOT has further plans to widen RM 620 to six lanes between Hudson Bend Road and Hwy. 71, but the state has yet to announce a start date for the construction of that project.
The area likely will not have any new transit lines added anytime soon, either. In the map for Project Connect—Capital Metro’s voter-approved regional transit plan that will add rail and bus lines throughout Austin—only one bus route is planned to serve the Four Points area.
“Any road development is going to help out there,” Crain said. “I think we’ll see development along [RM 620] in areas where infrastructure has already been established.”
As commercial developers look to get ahead of future demand, Crain said they will run into the same problem homebuilders are running into across Northwest Austin and western Travis County—a scarcity of available land to build on.
The Four Points area is located in the middle of the Balcones Canyonlands Preserve—a protected wildlife preserve that spans more than 50 square miles and covers more than 32,000 acres of land spotted across western Travis County. Created in 1996, land located inside the preserve cannot be developed without special permits acquired through Travis County or the U.S. Fish & Wildlife Service, according to the county.
Beyond the preserve, the Four Points area is geologically defined by rolling hills and steep, jagged bluffs. Crain said the cost of developing on this land goes well above the costs associated with developing office space in other parts of Austin.
“That is the gift and the curse of that area—it is so beautiful people want to be there but, the terrain is so harsh ... that you can’t do anything else with it,” Crain said.
The continued demand for Class A office space in the area, coupled with the fact that building new, dense office inventory is costly and difficult, has led to continually climbing market rates, and Crain said he doesn’t see that ending any time soon.
“Rates have been consistent—they are going up,” Crain said.
THE MARKET MOVING FORWARD
There are hundreds of thousands of square feet of Class A office space available for lease in the Four Points area, according to a 2021 first quarter market report from Aquila. More office space may come on the market in the coming years.
The recently opened Preserve at 620 has more than 120,000 square feet of modern space still available for lease, per the Aquila report. Tens of thousands of square feet of Class A office space are open for lease in the River Place Corporate Park and the Four Points Centre, both of which properties are owned by Brandywine Realty Trust.
Brandywine further has plans in place to add a fourth building to the Four Points Centre that would add 170,000 square feet of office space.
Recently, one of the largest sites for potential office development in western Travis County changed hands.
Los Angeles-based Karlin Real Estate purchased the 156-acre former 3M campus on RM 2222 at a June 1 bankruptcy court auction. Austin-based World Class Property Company previously held the property.
The acquisition opens the door for Karlin to invest in redeveloping the site, which offers hundreds of thousands of square feet of office space across multiple buildings.
“Will it change the landscape of the market out there? Absolutely. Will it happen quickly? There’s no way to know,” Crain said.